Markets moving on job creations, forgetting job losses

On Friday the jobs data provided the "snake oil" for equity investors but was received with mixed feelings going forward. A feeling of relief fell on Wall Street as 175,000 jobs were "created" somehow giving evidence of a continued economic recovery. Of course we do not agree with that assessment because completely overlooked was the Thursday first time unemployment data showing 346,000 jobs lost by virtue of workers first time unemployment applications. On Thursday after that figure the equity market sold off more than 200 Dow points and on Friday gained that much back posting the biggest one day gain since early January. The euphoria attached to the jobs data on Friday should be short-lived in my opinion because the global economic picture remains in question. Since the world is one "big happy family", the tribulations of one affect the others and the news emanating from the U.S. trading partners cannot possibly be construed as positive. I believe the U.S. administration is offering "Kool-Aid" to the public and unfortunately I see them "drinking it down" and requesting more. Now for some actual information to help my readers "navigate" through the "troubled waters" I see ahead…

Interest Rates:

September U.S. Treasury bonds closed at 139 17/32nds, down 1 20/32nds after the "joyful" jobs data showing 175,000 jobs created in May even against the slight bump up of the unemployment rate from 7.5% to 7.6%. Speculation that the U.S. Federal Reserve may consider halting bond purchases based on the "better than expected jobs data" led investors down the "garden path" from the relative safety of treasuries to the "riskier" asset class of equities. We had suggested last week the purchase of bond calls and that seemed to work coming into Friday morning as the U.S. equity market lost over 200 points on Thursday only to recover those 200 points in the Dow on Friday. Stay with the bond calls and add on any further declines in 30 year bonds.

Stock Indices:

The Dow Jones Industrial average closed Friday at 15,248.12, up 207.50 or 1.38% after the May payroll data rose more than expected. The increase in jobs of 175,000 was not too much to prompt the U.S. Federal Reserve to consider monetary tightening. That "border line" increase coupled with the slight gain in the unemployment rate from 7.5% to 7.6% allayed fears of elimination of quantitative easing by the Fed and helped the market recover the 200 plus points lost in the previous session. For the week the Dow gained 0.9%. The S&P 500 closed at 1,643.38, up 20.82 points or 1.28% and up 0.8% for the week. The tech heavy Nasdaq closed at 3,469.22, up 45.16 points or 1.3% and for the week gained 0.4%. Equity markets continue show signs of "exhaustion" at current levels and we continue to suggest the implementation of risk hedge strategies for holders of large equity positions. We can analyze portfolio "construction" as relates to which indices could be utilized in order to provide a level of protection against what we see as an impending stock market decline. The utilization of hedging programs reduces the necessity for "partial liquidation" of specific securities in specific industries that might suffer from such a market decline.

About the Author

John has over 40 years experience at major U.S. Brokerage firms as Manager and Director of various International Divisions and is the founder of his own trading and brokerage firms. Over the years John has gained a wealth of knowledge and experience in all aspects of investments and trading. He was also a floor trader at the Commodity Exchange in New York. He formed Acuvest in 1999 and can be reached at futures@acuvest.com.